Merrill Lynch & Co. Inc. is following Citigroup in buying back its retail clients’ auction rate securities.

The firm said that, effective January 15, 2009, and through January 15, 2010, it will offer to buy at par auction rate securities sold by it to its retail clients. Its retail clients currently hold an estimated US$12 billion in ARS, which Merrill expects to be reduced to under US$10 billion by January 2009 as a result of announced and anticipated issuer redemptions. In addition to its offer to buy ARS, it will continue to actively provide clients with attractive loan arrangements to give them needed liquidity.

Under the plan announced today, retail clients of Merrill Lynch would have a year, beginning on January 15, 2009, in which to sell ARS back to the firm. It says it does not expect the purchases to have a materially adverse impact on its capital ratios, liquidity, or consolidated financial performance.

“Our clients have been caught in an unprecedented liquidity crisis,” said John Thain, chairman and chief executive officer of Merrill. “We are solving it by giving them the option of selling their positions to us.”

The move follows a settlement entered into yesterday by Citi and securities regulators concerning ARS, which included a buyback of retail investors’ positions.

“We have made tremendous strides in working with issuers during the last five months; over 40% of our clients’ auction rate holdings have been liquidated,” said Robert McCann, president of global wealth management at Merrill. “But we are not satisfied with this pace, even though the marketplace continues to move forward and we expect issuer redemptions to accelerate with time. With this offer, we continue to put the interests of our clients first.”

Merrill Lynch acknowledged the role of the US Securities and Exchange Commission; the New York state attorney general, Andrew Cuomo; the Massachusetts Securities Division and the North American Securities Administrators Association on these issues. The firm said it will continue to work closely with and encourage auction rate securities issuers in their restructuring efforts to resolve the outstanding liquidity issues for all clients.